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Analyst applauds Cott’s acquisition

Canada’s biggest soft-drink maker, Cott Corp., is hoping that the acquisition of a privately held U.S. juice giant will give it a major boost on store shelves, and save it money in the process.

Chief executive Jerry Fowden told analysts in a conference call Thursday that the purchase of Cliffstar Corp., based in Dunkirk, N.Y., near Buffalo, for more than half a billion dollars would create a beverage powerhouse.

“Combined with Cliffstar, Cott will be a larger, more balanced global producer of private label beverages with a stronger, more robust and sustainable business model,” he said.

“Our customer relationships will have an extended reach from virtually all major retailer channels including mass, club, grocery, drug and convenience retailers.”

He added that Cott expects the combined operations will save $20 million in costs each year.

For Cott, the acquisition is a slick strategic move after the company, which supplies private branded soft drinks to major retailers, was dealt a heavy hand of challenges.

Consumers have been shifting their beverage habits away from carbonated drinks in recent years, which left Cott scrambling to diversify its slate of mostly carbonated offerings.

Then, last year it lost the a deal with Walmart to be the exclusive supplier of store-brand pop to the world’s biggest retailer.

Fowden spent much of the conference call explaining the strategic benefits of the Cliffstar acquisition, noting that the company has been a leader in innovation, even compared with some of the industry’s biggest players.

“An important part of this combination is the addition of the talented Cliffstar team that I know fits very well within Cott’s culture,” he said.

Under the agreement, Cliffstar will receive $500 million in cash when the deal closes and another $14 million over three years. The company is also entitled to an additional payment of up to $55 million if it meets certain performance targets.

“The purchase price takes into account a conservative and cautious approach as we consider what are the right expectations for the combined business in the future,” Fowden explained.

“We have spent considerable time and resources during the diligence process leading up to this combination. Our findings have fortified our optimism about the long-term opportunities we will pursue on a combined basis.”

Cott said its trailing 12-month global consolidated revenue, factoring in the acquisition, would total $2.3 billion, while its trailing 12-month net income would be $155.8 million (U.S.) for the year ended April 3, 2011.

The company said it expects consolidated revenue of $426 million and operating income of $37 million in the second quarter.

UBS analyst Kaumil Gajrawala said the acquisition was a positive long-term move for Cott, even though the company expects to take on up to $375 million of new debt, a $95-million equity issuance and a $75-million increase to its asset-based lending facility.

“It shifts their business from 61 per cent soft drinks currently to only 43 per cent post deal,” Gajrawala wrote. “That said, we believe investors will be concerned about the additional leverage Cott is taking on to fund this deal.”

Cliffstar has 1,200 employees and operates 11 plants in the U.S., including five bottling and distribution operations, three fruit processing plants, two fruit receiving stations and one storage depot. It had $654 million in revenue in the past 12 months.

Cott employs 2,800 people and has bottling plants in the United States, Canada, the United Kingdom and Mexico. Its non-alcoholic beverage concentrates are sold in more than 50 countries and it is one of the world’s largest pop producers, ranking third behind Coke and Pepsi.

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